U.S.
store credit card bait hard to resist but costly for
consumers
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[October 22, 2015] By
Mitch Lipka
(Reuters) - U.S. retailers dangle enticing
bait to sign up for store-branded credit cards but biting could be a
costly decision for consumers, particularly for pricey items like
engagement rings, computers or dining room sets that may take months, or
even years, to pay off.
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A recent analysis of 64 cards from 42 retailers by CreditCards.com
(http://creditcards.com) found that the average interest rate for a
store-branded card is more than 23 percent. Jewelry chain Zales
topped the list with a rate of 28.99 percent, followed by office
supply store Staples at 27.99 percent. The average credit card has
an interest rate of 15 percent.
Reuters asked Matt Schulz, CreditCards.com’s senior industry
analyst, about the pitfalls and pluses for store-branded cards.
Q: How do stores like Zales and Staples get takers for their cards?
What tactics do they and other retailers use to entice consumers to
apply?
A: Most retailers rely primarily on discounts at the checkout
counter to entice people to apply for these cards, but it is
important that people don’t allow themselves to feel pressured.
If you’re interested in the card, say no, but take a brochure home
with you and read up on the details. If the card still sounds good
to you after you read up on it, apply the next time you go to that
store. Chances are all the same perks that drew you in will still be
there, but most important, you’ll be making a much more informed
decision.
Q: What is the target audience the stores want to get to apply for
the cards?
A: Many of these cards are about bringing customers back and
building loyalty. I think that would be especially important for
Staples, which thrives on repeat business from (buyers) of all
sizes. However, even high-end department stores like Nordstrom
(http://shop.nordstrom.com/c/rewards-questions) and Macy's (http://mcys.co/1GixmCS)
have tiered programs that reward frequent customers.
Retail card rates are higher in part because of the risk involved.
These cards are offered to a wide range of consumers, so interest
rates have to be a bit higher to help deal with that risk.
Q: Is it ever a good deal to go for the store-branded card? If so,
when would it make sense?
A: Store-branded cards definitely can work for you, but only if you
pay your balance off at the end of each month. If you never carry a
balance, those 20 percent discounts that come with the card can lead
to real savings. However, if you’re paying 25 percent interest to
get that 20 percent discount, the math clearly doesn’t work in your
favor.
Q: What should consumers consider as alternatives to finance costly
purchases, like that engagement ring, as an alternative to
high-interest store-branded cards?
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A: A general-purpose credit card can be a good option. More often
than not, those cards will have lower APRs and better rewards than
their retail counterparts. It’s such a competitive time in the
credit card business that if you’ve got good credit, you should be
able to find a good credit card deal.
Q: When consumers are given the offers for the cards, what should
they be looking for in the fine print?
A: As with any credit card, APRs and fees are the most important
things to understand. However, it’s also important to know whether
the card can be used anywhere or just with that retailer.
They should also understand the rules surrounding any rewards or
discounts that come with the card. For example, are there caps on
how much you can earn? Are there minimum spending thresholds that
you must reach?
Q: Are there any popular retailers that offer branded cards with a
reasonable rate?
A: The best rate we saw was a 9.99 interest rate on the Dillard’s
American Express card. That’s the low end of a range of possible
APRs that tops out at 24.99 percent.
That range makes it very important that you understand what type of
credit you have before you apply. After all, the last thing anyone
wants is to think they’re getting a 9.99 percent APR on their credit
card and end up with a 24.99 percent APR.
(Editing by Beth Pinsker and Diane Craft)
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